BP, the oil patch's self-proclaimed king of green, says it sells more ethanol than anybody. But it doesn't produce a drop.

And it doesn't plan to.

"We're not in the ethanol production business," BP's chief executive, Tony Hayward, told me last week. "What we'd like to do is get to the next generation of biofuels."

BP blends ethanol as an additive in its gasoline and is embarking on a program to sell E85 ethanol (an alternative fuel that is 85 percent ethanol and 15 percent gasoline) through many of its stations in the Midwest.

But it doesn't see ethanol as the answer to the alternative fuel question.

Corn-based ethanol, which the government touts as the best substitute for gasoline, may already be losing its luster as a fuel of the future. Increasingly skeptical reports question its efficiency, energy output, emissions and economics.

Archer Daniels Midland, the world's biggest ethanol maker, last month reported its slowest earnings growth in a year but blamed the non-ethanol related parts of its business for the slowdown.

That hasn't dampened ethanol production, though. ADM, for example, plans to increase its production capacity by 50 percent next year, to 1.6 billion gallons, the company said.

This year, capacity is expected to expand by 7.1 million gallons a day, according to a Lehman Bros. study released in late April. That increased production may surpass demand by year's end, the study found.

Part of the problem is that once it's produced, it's difficult to get ethanol where it needs to go. It can't be transported through conventional pipelines, and its cost benefits are based on government subsidies that do more for the farm lobby than the average driver.

Most ethanol is blended into conventional gasoline to reduce emissions in polluted cities such as Houston. BP, for example, blended more than 700 million gallons of ethanol into its U.S. gasoline last year, said Bob Malone, head of BP America.

Conflict of interest

BP also plans to become one of the biggest sellers of E85. It's widely available in the Midwest and locally in some locations. But E85 has been slow to catch on, even among drivers of flex-fuel vehicles.

Critics argue that ethanol requires more energy to make than it produces when burned, and its carbon dioxide emissions aren't significantly lower than gasoline.

Ethanol "actually doesn't at the end of the day make much difference in terms of CO2," Hayward said. "And of course it has serious issues with competing with the food source."

The price of corn for July delivery rose almost 10 percent last week, to $4.19 a bushel. Corn prices have surged 80 percent in the past year and in February hit their highest point in more than a decade when they topped $4.50 a bushel.

It's not just corn that's more expensive, though. As I mentioned in Sunday's column, higher corn prices are driving up food prices on almost every aisle of the grocery store. Food costs for consumers rose almost 4 percent in May compared with a year earlier, according to the federal Bureau of Labor Statistics. Only energy and medical expenses rose more.

More harm than good?

While it may be contributing to inflation, ethanol isn't doing much to address our oil dependency. It accounted for less than 4 percent of the U.S. gasoline supply last year, and the current domestic corn crop, in its entirety, couldn't produce enough ethanol to match our gasoline demand, according to a March report by the Congress-
ional Research Service.

At the moment, only 17 percent of the U.S. corn crop goes to making ethanol, the report said. To meet our energy demands with ethanol would require millions more acres devoted to growing corn, which raises its own environmental concerns.

At the same time, an increase in the number of ethanol plants in Iowa during the past six years has led to increased air, water and soil pollution, the Des Moines Register reported this month.

A step on the path

Most scientists believe no single fuel will replace oil. Instead, we'll rely on a blend of sources. Ethanol may be one step in that evolution, but it's a baby step.